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Deutsche Bank Markets Research

Asia

Philippines

Strategy

Philippine Strategy

Date

24 June 2016

Strategy Update

The straight path turns to the left

Duterte administration to take office on 30 June

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

This research has been prepared in association with Deutsche Regis Partners, Inc. The opinions contained in this report are those of Deutsche Regis Partners, Inc.

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Rafael Garchitorena

Deutsche Regis Partners, Inc.

Research Analyst

(+63) 2 894 6644

[email protected]

Gio Dela-Rosa, CFA

Deutsche Regis Partners, Inc.

Research Analyst

(+63) 2 894 6642

[email protected]

Related recent research Date

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Carissa Mangubat

17 Jun 2016

Philippine infrastructure - Infrastructure a priority for incoming administration

Klyne Resullar

17 Jun 2016

Economics Update - Philippines: Gunning for inclusive growth

Diana del Rosario

16 Jun 2016

Source: Deutsche Bank

As the world digests the implications of Brexit, the Philippines focuses on a much more local regime change. On 30 June, Mr Rodrigo Duterte will be sworn in as the 16th President of the Republic of the Philippines. Mr Duterte has quickly consolidated his base with a coalition that claims a "super-majority" of over two-thirds of Congress. His incoming Cabinet has unveiled a "10-point socio-economic agenda" that strongly signals his business-friendly, expansionary, if left-leaning, policies.

Taking a left(ist) turn, towards a more “inclusive” kind of growth The incoming government inherits a robust domestic economy – much more resilient to global shocks like Brexit – thanks to the “straight path” of good governance under President Aquino. However, Mr Duterte has vowed to make growth more "inclusive". Social reforms include enhanced welfare (CCT), pension and healthcare benefits. A tax reform package seeks to lower personal and corporate income tax rates, while improving collection and introducing/hiking taxes on "junk food", real estate, and petroleum. To attract investments, Mr Duterte wants to raise foreign ownership limits for certain industries (eg. telecom, power), cut red tape, and revisit the REIT law. Infrastructure spend is targeted to rise to 5% of GDP, a goal that eluded the Aquino administration. He also espouses a shift to Federalism. Central to Mr Duterte's campaign was his strong anti-crime and anti-corruption drive.

PSEi up 11.2% since early May, now the best performing in the region The markets seem to like what they see and hear. The PSEi Index is up 11.2% since just before the election, and is up 10.6% YTD, now the best performing market in Emerging Asia. The Peso, too, is up c.2% since early May. Foreign net buying has surged, reversing months of outflow.

Policies favor consumers/retailers, infra plays Mr Duterte's policies to promote broader, more inclusive GDP growth will support consumption, with retailers as likely winners. Increased infrastructure spending would benefit project proponents, construction, building materials, and even support banks’ loan growth. A review of the REIT rules could be positive for property companies with strong rental portfolios.

Neutral on the market – at 20x PE on 2016F; earnings disappoint again However, the market's jump has meant that the PSEi Index is again trading at 20x our 2016F profit estimates, near the top of its historic trading range. Meanwhile, earnings in 1Q16 disappointed again, up just 6% YoY and posing downside risk to our 12% index earnings forecasts.

Change is here; short-term disruptions likely; fiscal slippage is a risk Mr Duterte ran and won on a platform of change, some of it radical. Change can often be a (very) good thing, but it is hardly ever easy. Much needed long-term reforms will likely come with short-term disruptions, whether politically, economically or both. The fiscal side, for example, bears close monitoring as the incoming administration juggles tax reform, social and infra spending, and a crackdown on corruption in the revenue collection agencies.

24 June 2016

Philippine Strategy


Change is here

Market cheers Duterte win

Philippine financial markets seem to be cheering the election of former Davao

City mayor Rodrigo Duterte, who takes his oath as the 16th President of the

Republic of the Philippines on 30 June. Since the elections on 9 May, the main

PSEi Index has risen 11.2% to a new 52-week high, roundly outperforming the

region. Year-to-date, the PSEi is up 10.6%, the best performing market in

Emerging Asia.

After a year of near-constant net foreign selling, foreigners turned aggressive

buyers in May. The local stock market saw net inflows of $285mn.

The Peso also strengthened since the elections. After appreciating as much as

2.7%, the currency has settled down, but is still up 1.7% from 6 May.

Figure 1: PSEi Index surges post May 2016 election

8,127

6,952

6,991

7,756

5,500

6,000

6,500

7,000

7,500

8,000

8,500

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

all-time high Apr'14

end-2015

6,084Jan'16

06May'16

Source: Deutsche Bank, Philippine Stock Exchange

Figure 2: PSEi – best performing in Emerging Asia Figure 3: Net foreign buy/(sell), monthly in USDmn

11.6%10.6%

6.6%4.5%

3.2%1.6%

-3.2% -3.4%-5.1%

-17.9%-20%

-15%

-10%

-5%

0%

5%

10%

15%

-1,000

-800

-600

-400

-200

0

200

400

600

800 May'16$285mn

Source: Deutsche Bank estimates, Bloomberg Finance LP

Source: Deutsche Bank estimates, Philippine Stock Exchange

PSEi Index

+11.2% since elections

+10.6% year-to-date

+27% from January low

24 June 2016

Philippine Strategy


Duterte's team hits the ground running

We must admit that the market’s positive reaction somewhat surprised us.

While we did downplay the pre-election worries over Mr Duterte’s headline-

grabbing comments (see "Testing its resilience, Pt2 - Do the elections matter?"),

we expected the market to take a more wait-and-see attitude towards the

controversial candidate. In that report and in another directly after the election

("A missive from Manila - The road less travelled", 10 May), we reckoned that

Mr Duterte's appointments to his Cabinet would be crucial for calming

markets' nerves. Individually, the proposed Department Secretaries have so far

received mixed reviews (see Figure 8, on page 9).

Cabinet bares “10-point socio-economic agenda”

However, those in the "economic cluster" have come out strong. Within days

of the election (on 12 May), the transition team – led by incoming Finance

Secretary Carlos G Dominguez – revealed the new administration’s 8-point

socio-economic agenda, which was later expanded to a 10-point agenda:

1) Maintain the key macroeconomic policies — including fiscal,

monetary and trade — of the previous administrations.

2) Reform the tax system to make it more progressive, improve

collection effectivity, and index tax rates to inflation.

3) Attract more investment (both foreign and local) by improving

competitiveness and ease of doing business. Relax Constitutional

foreign ownership limits for partially protected industries (exception

for land ownership).

4) Accelerate infrastructure spending to 5% of GDP (from less than 3%

in 2015). This will be done both through direct government spending

and through public private partnership (PPP).

5) Promote rural development, improve agricultural productivity, and

promote rural tourism.

6) Ensure security of land tenure, and streamline land titling agencies

and processes.

7) Invest in human capital development by improving access to

healthcare and making the education system better responsive to the

demands of businesses.

8) Enhance innovation by promoting science, technology and the

creative arts.

9) Stronger and broader social safety nets for the poor, including an

expansion of the existing Conditional Cash Transfer (CCT) program.

10) Fully implement the Responsible Parenthood and Reproductive

Health Law.

Since then, the Cabinet has been proactively promoting the 10-point agenda.

Earlier this week (20-21 June), Duterte and his Cabinet hosted "Sulong

Pilipinas" (or "Onward Philippines") in Davao City, a two-day consultative

forum in which the country's business leaders were asked to give their

recommendations — a "wish list" — for the incoming officials.

24 June 2016

Philippine Strategy


Consolidates hold on Congress – from fringe party to a super-majority

There were also concerns over how quickly Mr Duterte could form a coalition

in Congress. Many of the proposed reforms need Congressional support. This

is especially true for the ones that require a change in the Constitution such as

the shift to a Federal form of government and the relaxation of foreign

ownership restrictions.

His political party, the Partido Demokratiko Pilipino-Lakas ng Bayan (or PDP-

Laban), is quite small. Immediately after the May election, the party only held

three seats in the 292-member Lower House, and only one of the 24 seats in

the Senate. Just two weeks after the election though, his party had formed

coalition agreements that claim at least 260 members, much more than the

two-thirds super-majority needed to begin the process of Constitutional

change. Both the Speaker of the House (Congressman Pantaleon Alvarez) and

the Senate President (Senator Aquilino Pimentel III) are expected to come from

the PDP-Laban.

Taking a left(ist) turn, towards more “inclusive” growth

The Duterte team has lauded the current – and past – administrations for their

sound fiscal and monetary policies that have made the Philippines among the

world's fastest growing and most resilient economies. These have also led to

multiple credit rating upgrades to investment-grade status. The Aquino

administration attributes this success to their policy of “Daang Matuwid” – or

“straight path” – of good governance.

However, Mr Duterte – a self-professed “leftist” and “socialist” – believes that

growth needs to be more inclusive, addressing extreme income inequality.

Based on government estimates, 23.6% of Filipinos were below the poverty

line in 2014. His policies focus on uplifting the poorest of the poor through

lower tax rates and through improved education, CCT, pension, and healthcare

benefits. He also intends to focus investments – including infrastructure –

outside Metro Manila, where poverty incidence is much greater. Per-capita

GDP in the National Capital Region (NCR) in 2014 was almost three times the

national average. More shockingly, it was nearly 12x that of the poorest

province.

Figure 4: GDP per capita per region (P)

365,629

126,579107,479

30,602

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Source: Philippine Statistics Authority

24 June 2016

Philippine Strategy


Policy proposals – potential impact on sectors, stocks

Outside the broad policies outlined under the 10-point agenda, Mr Duterte

and/or his Cabinet members have, at different times, made a number of

specific proposals the administration is likely to pursue.

Figure 5: Policies proposed by incoming Duterte administration

PLAN / LIKELY PROPOSAL REMARKS

FEDERALISM Devolution of powers to regions Improved opportunities and income for areas outside the capital

Necessary change in Constitution likely a multi-year process

Positive for companies that have larger emphasis on operations outside the capital

TAX CHANGES / REFORM

Individual income tax Reduce top tax rate to 25% from 32% Increases disposable income

Positive for consumption and consumer companies

Corporate income tax Reduce tax rate to 25% from 30% Increases corporate income across the board

Real estate tax Update zonal values which are the bases for tax assessments

Raises holding cost for property, esp for those with large land banks May discourage investing in property

Mildly negative for property companies

Excise taxes on oil/petroleum Raise excise taxes and index them to inflation Indirect decrease in disposable income; equivalent to oil price hike

Could have mild impact on inflation

Excise taxes on "junk food" Tax on unhealthy food Coverage of "junk food" unclear

Would be negative for companies selling products covered

PEACE&ORDER / PUBLIC HEALTH

Peace and order Aggressive crackdown on criminality Improved peace and order environment could spur economic activity and employment

Anti-smoking laws Davao City’s extremely strict smoking ordinances could be implemented nationwide

Short-term negative for tobacco consumption, but Davao experience was that volumes recovered within a year.

Alcohol sale restrictions Davao prohibits the sale of alcohol after 2 am, except in hotels

Unclear what the impact on consumption was in Davao or what it could be if implemented nationally

SOCIAL PROGRAMS

Conditional cash transfer Review and expansion of CCT program Would raise incomes of the poorest segment of population

Positive impact on consumption and consumer companies

Healthcare Achieving universal healthcare funded by gaming agency

Could free up non-healthcare spending Positive impact on consumption

Government salaries Double wages of uniformed personnel; increase wages of teachers

Aim to reduce corruption and attract better workers Positive impact on consumption

INFRASTRUCTURE Increase infrastructure spending to 5% of GDP Would improve long-term competitiveness of the country

Positive impact on project developers, contractors and suppliers of construction materials

INVESTMENTS

Red tape Improve approval and licensing process for businesses

Improved ease of doing business could spur economic activity and employment

Could lead to greater credit demand and would be positive for banks

Foreign ownership Raise allowable foreign ownership in partially nationalized industries

Would require Constitutional amendments Many companies already have foreign ownership above the 40% maximum through various legal structures

Real Estate Investment Trusts (REIT)

Review and/or revision of rules to relax requirements to create REIT companies

Would improve recycling and investment of capital for property investment at risk of foregone tax revenue for the government

Positive for companies with rental property portfolio that can be spun off into REITs


24 June 2016

Philippine Strategy


Expansionary fiscal policy supports continued GDP growth

Broadly, the stated policies seem to support sustained healthy economic

growth. In the past four years, Philippine GDP growth has averaged close to

6.5% YoY. This was achieved despite chronic under-spending by the national

government, particularly in infrastructure. DB’s economist Diana del Rosario

reckons that “loosening fiscal levers” poses potential “upside risk to our 2-year

growth outlook” (See “Economics update – Philippines: Gunning for inclusive

growth” 16 June). Our forecasts call for real GDP growth of 6.0% in 2016 and

5.8% in 2017. Longer-term, plans to reduce bureaucratic red tape and to open

foreign ownership restrictions could provide a further boost from increased

private investments.

Putting money in consumers’ pockets – prefer retailers

Nearly every item on the list in Figure 5 would have a net positive impact on

personal incomes. Uplifting the lives of the poorest families would increase the

spending power of a disproportionate number of Filipinos, growing the market

for consumer staples. Reduced poverty and provincial growth could also

accelerate the migration of consumption into modern retail formats (eg.

supermarkets). All of these would be positive for retailers such as Metro Retail

(MRGSI.PS), Puregold (PGOLD.PS), Robinsons Retail (RRHI.PS), and to a lesser

degree SM Investments (SM.PS) as retail accounts for 20% of net profits.

Consumer companies such as Century Food (CNPF.PS), Jollibee (JFC.PS) and

Universal Robina (URC.PS) would benefit too. However, a proposed tax on

“junk food” could hurt some producers. It is unclear at this stage what the

term “junk food” would cover. Globally though, these sort of taxes tend to

focus on products that are high in sugar and/or sodium. URC could be

casualties of this policy.

Infrastructure – removing bottlenecks, honoring contracts

The incoming Cabinet aims to de-bottleneck infrastructure spending. It has

vowed to not review existing projects, a practice that dragged spending plans

of previous administrations. Mr Duterte wants to stop losing bidders seeking

temporary restraining orders (TROs) to delay contract awarding and forcing

rebids.

We estimate that there are more than $30bn worth of projects (railways, toll

roads, ports and airports) that could be undertaken in either PPP or non-PPP

form in the medium term. Finance Secretary-designate Dominguez, though,

admits to a lack of “absorptive capacity” in the government agencies, which

need to be addressed to execute the spending plans.

This could be positive for project proponents such as Ayala Corp (AC.PS), and

Metro Pacific (MPI.PS). Construction firms such as DMCI (DMC.PS) could

benefit even from non-PPP projects, as would cement and building materials

companies. The high capital nature of these projects could boost loan demand

for banks.

Crucially, the incoming administration has committed to honor contractual

obligations of the government, including those currently under litigation or

arbitration (see “Infrastructure a priority for incoming administration”, 16 June).

This could pose upside risk for the likes of MPI, AC and DMCI as all of them

have pending cases in their water and/or toll road operations.

24 June 2016

Philippine Strategy


Property – a mixed bag – prefer landlords (REITs), provincial developers

The policies are more of a mixed bag for property developers. To the upside,

the review of the REIT Law could be hugely positive for companies with large

portfolios of rental properties such as Ayala Land (ALI.PS), Megaworld

(MEG.PS), Robinsons Land (RLC.PS) and SM Prime (SMPH.PS). The push for

infrastructure outside of Metro Manila would benefit developers with larger

provincial exposures such as Filinvest Land (FLI.PS) and Vista Land (VLL.PS).

However, a proposed update in zonal values could mean significant increases

in real estate taxes. This would penalize companies that hold (or hoard) land

assets. All the aforementioned property companies would fit that bill, in our

view. Higher land tax could also hurt residential demand, particularly for

landed property. We understand that the gap between zonal and market values

for condos is much narrower.

Fiscal loosening – a balancing act; watch for slippage

To fund the Duterte administration’s projects, a much looser fiscal policy

would be required. Indeed it has already signaled an increase in the target

budget deficit to 3% of GDP compared to 2% of GDP under the outgoing

Aquino government (2014 and 2015 came in at about 1% of GDP, largely due

to underspending).

The challenge will be to balance reductions in income tax rates on one hand,

and increased social and infrastructure spending on the other. The risk to the

balancing act is slippage (pun intended).

We estimate, for example that income taxes alone account for P800bn. The

proposed reduction in the income tax rate to 25% could reduce tax collection

by P100-150bn, equivalent to close to 1% of GDP. The implementation of new

taxes and improved collection efficiency will need to be ramped up quickly to

compensate. Granted, the example is simplistic, and we do expect the tax rate

reduction to be implemented in phases. The Cabinet aims to deliver its

Comprehensive Tax Reform proposals to Congress by September.

On top of this, the Duterte government has vowed a crackdown on the main

collection agencies, the Bureau of Internal Revenue (BIR) and Bureau of

Customs, which together account for 88% of total government revenues. The

President-elect has explicitly tagged the bureaus as two of the “most corrupt”

agencies in government. News sources (eg. www.philstar.com) reported

threats of mass resignations at the BIR, though this was later denied by the

agency’s Commissioner.

Fiscal discipline during the two previous administrations was largely

responsible for improving the country’s credit rating to investment grade, and

consequently the sharp reduction in interest rates. We agree that there is

significant room to loosen the purse strings, especially with savings built up in

the Treasury in recent years. We believe the market will heartily support

increased spending for productive and inclusive growth. However, it may not

be as forgiving of recurring collection shortfalls.

24 June 2016

Philippine Strategy


Neutral on the market on a 12-month view

Valuations back at 20x PE on 2016 forecasts

We remain bullish on the country’s macro prospects, and see potential upside

to our GDP forecasts on the incoming administration’s policy statements.

However, the recent jump in share prices has brought the PSEi Index close to

20x PE on our 2016F earnings estimates, and 19.5x on 12-month forward PE.

Figure 6: PSEi 12-month forward PE (x)

5

10

15

20

25

30

-1 SD

avg

+1 SD

Source: Deutsche Bank estimates

Earnings disappoint… again; 1Q16 earnings growth of 6%

Meanwhile, company earnings continue to disappoint. Despite a surprise GDP

growth turnout of 6.9% in 1Q16, aggregate net profit for companies we cover

was up just 6% YoY in the same period. For reference, our current forecasts

call for 12% growth for the full-year. Further earnings misses could mean the

market is even more expensive than what Figure 6 would suggest.

Figure 7: Earnings growth – stuck in low gear

-20%

-10%

0%

10%

20%

30%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Ahead

In line

Behind

NPAT, %YoY (rhs)

Source: Deutsche Bank estimates, company data

24 June 2016

Philippine Strategy


Figure 8: President-elect Duterte’s proposed Cabinet members, and selected Bureau heads

Post Appointee Brief description

Spokesperson Ernesto Abella Educator, social entrepreneur and former pastor. Once kidnapped by rebels, but was saved with the help of then Mayor Duterte.

Executive Secretary Salvador Medialdea Began his career at a law firm (ACCRA). He and Mr Duterte, who is a client in his law firm, were childhood friends in Davao.

Cabinet Secretary Leoncio Evasco A priest during the Marcos era and a former small-town mayor in Bohol. He worked under Duterte in Davao and is a close confidant.

Agrarian Reform Rafael Mariano A farmer and the chairman of a militant (leftist) farmer's group that led many protests against the Aquino administration.

Agriculture Emmanuel Piñol A former North Cotabato Governor who has years of experience as governor and vice-governor of North Cotabato.

Budget Benjamin Diokno Previously served as budget secretary under the Estrada administration and undersecretary under President Corazon Aquino.

Defense Delfin Lorenzana A retired general who is currently the Presidential Representative and Office of Veterans Affairs head at the Phils. Embassy in Washington.

Education Leonor Briones A former National Treasurer during the Estrada administration. Currently teaches Public Administration at the University of the Philippines.

Energy Alfonso Cusi Served under the Arroyo administration as head of the country’s Aviation and Ports Authority before moving to the Int'l Airport Authority.

Environment Regina Lopez Head of the charitable arm of ABS-CBN and a member of the Lopez clan. She is an environmentalist and vocal anti-mining advocate.

Foreign Affairs Perfecto Yasay, Jr. A lawyer and former chairman of the SEC. He testified against President Estrada in the latter’s impeachment trial over price manipulation.

Finance Carlos Dominguez III Secretary of Environment then later of Agriculture under Pres Corazon Aquino from 1987-89. Business interests in agri, retail and hotels, etc.

Health Paulyn Ubial Currently the Asst. Secretary of the Department of Health. Dr. Ubial is currently in charge of the agency's Office for Health Regulations.

Info, Comm, Tech Rodolfo Salalima Lawyer and former Chief Legal Counsel of Globe Telecom (GLO.PS). Was a law school classmate of Mr Duterte.

Interior/Local Govt Mike Sueño A former South Cotabato Governor and former chairman of PDP-Laban, the incoming president's political party.

Justice Vitaliano Aguirre II A prosecutor in the impeachment of SC Chief Justice Corona. Legal counsel during Duterte's campaign. Law school classmate of Duterte.

Labor Silvestre Bello III Served as Justice Secretary under the Cory Aquino's administration, Solicitor General and head of the Negotiating Panel under Pres Ramos.

Public Works Mark Villar Congressman and a member of the Villar/Aguilar political family of Las Piñas. Family owns the listed real estate company Vista Land (VLL.PS).

Science & Technology Fortunato Dela Peña Appointed Undersecretary of the Dept. of Science and Technology in 2001. Also currently the president of the National Research Council.

Social Welfare Judy Taguiwalo A professor in the University of the Phils. Helped organize a militant women's organization (MAKIBAKA) and was arrested and tortured during the Marcos period.

Tourism Wanda Teo The president of one of the largest travel associations in the country. She also owns a travel agency based in Davao City.

Trade & Industry Ramon Lopez The current vice president / exec. asst. at RFM Corp. Also the executive director of a non-profit org that promotes entrepreneurship.

Transportation Arthur Tugade Headed state-owned Clark Development Corporation (2012-16). Is a name partner at a law firm, and law school classmate of Duterte.

Internal Revenue Cesar Dulay Not much is known apart from him being a lawyer. His appointment to the "most corrupt" agency suggests he is someone Duterte trusts.

Customs Nicanor Faeldon A former Marine captain who (along with Sen. Trillanes) led the Oakwood mutiny in 2003. Was subsequently jailed for two years.

Economic Adviser Ernesto Pernia A professor emeritus in economics at the University of the Philippines. A former lead economist at Asian Development Bank.

Peace Process Jesus Dureza Served various gov't posts such as Spokesman of President Ramos, Press Secretary, and Presidential Adviser on the Peace Process.

Drug Enforcement Isidro Lapeña A retired general and former Davao City Police chief. Once headed the Davao Public Safety Command Center.

Security Adviser Hermogenes Esperon Armed Forces Chief of Staff under the Arroyo admin. Also served as Presidential Security Group commander under president Ramos.

Legal Counsel Salvador Panelo A lawyer who’s taken up high-profile controversial cases.


24 June 2016

Philippine Strategy


Appendix 1

Important Disclosures

Additional information available upon request

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Rafael Garchitorena/Gio Dela-Rosa

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

53 %

36 %

10 %16 % 15 % 21 %

050

100150200250300350400450500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

Regulatory Disclosures

1.Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.

24 June 2016

Philippine Strategy


Additional Information

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"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources

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denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the

investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are

current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and

other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise

to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash

flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a

loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse

macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation

(including changes in assets holding limits for different types of investors), changes in tax policies, currency

convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and

settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed

income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to

FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the

index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended

to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon

rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is

also important to acknowledge that funding in a currency that differs from the currency in which coupons are

denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to

the risks related to rates movements.

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Philippine Strategy


Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.

The appropriateness or otherwise of these products for use by investors is dependent on the investors' own

circumstances including their tax position, their regulatory environment and the nature of their other assets and

liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar

to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can

be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be

incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable

for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized

Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the

website please contact your Deutsche Bank representative for a copy of this important document.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)

exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by

numerous market factors, including world and national economic, political and regulatory events, events in equity and

debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed

exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are

affected by the currency of an underlying security, effectively assume currency risk.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the

investor's home jurisdiction.

United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and

SIPC. Analysts employed by non-US affiliates may not be associated persons of Deutsche Bank Securities Incorporated

and therefore not subject to FINRA regulations concerning communications with subject companies, public appearances

and securities held by analysts.

Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated

in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under

German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal

Financial Supervisory Authority.

United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester

House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the

Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial

Conduct Authority. Details about the extent of our authorisation and regulation are available on request.

Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch.

India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India

(SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received

administrative warnings from the SEBI for breaches of Indian regulations.

Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial

instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA,

Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks

involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by

multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to

losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional

losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories

of investment advice, products and services. Recommended investment strategies, products and services carry the risk

of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in

market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the

relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in

this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the

name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank

24 June 2016

Philippine Strategy


Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are

not disclosed according to the Financial Instruments and Exchange Law of Japan.

Korea: Distributed by Deutsche Securities Korea Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register

Number in South Africa: 1998/003298/10).

Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles

Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters

arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who

is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and

regulations), they accept legal responsibility to such person for its contents.

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is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited,

Taipei Branch may not execute transactions for clients in these securities/instruments.

Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre

Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall

within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,

West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related

financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre

Regulatory Authority.

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any appraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the

Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall

within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya

District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.

United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated

by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services

activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai

International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been

distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as

defined by the Dubai Financial Services Authority.

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referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please

refer to Australian specific research disclosures and related information at

https://australia.db.com/australia/content/research-information.html

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Additional information relative to securities, other financial products or issuers discussed in this report is available upon

request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.

Copyright © 2016 Deutsche Bank AG

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Stuart Kirk Head of Thematic Research

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Filiale Hongkong

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Hong Kong

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Japan

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Deutsche Bank AG London

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London EC2N 2EQ

United Kingdom

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Deutsche Bank Securities Inc.

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New York, NY 10005

United States of America

Tel: (1) 212 250 2500

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